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Whole Foods suppliers say new policies are costly, hurt small business


Whole Foods
Whole Foods suppliers say the grocer’s costly new
policies are hurting their business.

AP/Mark Lennihan

  • Whole
    Foods
    is charging brands more money for prime shelf space
    and introducing new fees. It has also stopped paying shipping
    fees for some products and dropped minimum-order
    requirements.
  • Some small and local vendors say the fees are damaging
    their business and they’re considering cutting ties with Whole
    Foods as a result.
  • “I once drove to every Whole Foods store in the
    Portland area and dropped off jars of our nut butters” for
    stores to sell, said the founder of a brand of natural nut
    butter. “That’s over, that’s done. That’s not ever happening
    again.”
  • “For a small vendor to go through this is a hellacious,
    horrible time and financial burden,” the CEO and founder of a
    snack-bar company said.

Whole Foods is changing the way it does business with suppliers,
and some local and regional brands say it’s having a crippling
impact on their business.

The grocery chain is charging brands more money for prime shelf
space and in-store product demonstrations and taste tests while
also requiring them to pay ongoing fees to third-party companies
for food-safety audits and photographs of their products. 

Whole Foods has also dropped minimum-shipment guidelines that
prevented stores from making tiny orders of just one or two cases
of goods and stopped paying shipping fees for some goods,
according to a company email on the changes. Several suppliers
told Business Insider that they were losing money on shipments as
a result. Two suppliers said they had refused to fill orders when
shipping costs exceeded the cost of their goods. 

The changes are part of an effort by Whole Foods to cut costs and
streamline product merchandising across its stores. But they are
leading to confusion and unrest among some of Whole Foods’
suppliers, according to interviews with eight vendors and two
brokers who collectively represent more than a dozen other
brands. Some are considering cutting ties with Whole Foods as a
result.

“They have pissed off their employees, they have pissed off
customers, and they have pissed off their vendors,” said a Whole
Foods vendor of eight years who asked to remain anonymous for
fear of retribution. “From a financial perspective, we can only
take so much abuse before we say this just isn’t working for us
anymore.”

Whole Foods spokeswoman Brooke Buchanan did not respond to
requests for comment.

Small brands are being squeezed by new requirements


Whole Foods
A Chicago Whole Foods
store. Whole Foods stores across the US are suffering from food
shortages as a result of a new inventory-management system,
employees say.

Twitter/@firstmate_kate

Among the new rules at Whole Foods is a requirement that
suppliers selling the grocer more than $300,000 of goods annually
must discount their products by 3% to 5%, a change first reported
by
The Washington Post
. Brands must also now pay fees to
Daymon Worldwide, a Connecticut retail consulting firm, to
schedule in-store product demonstrations — a key way for small
and new brands to market themselves to customers. They could
previously do their own demonstrations without paying a fee or
hire outside companies to do it for them.

Whole Foods is raising its rates for prime, eye-level shelf space
as well, The
Wall Street Journal reports

Every one of the suppliers that spoke with Business Insider said
Whole Foods’ new fees and other changes benefited larger brands
that could more easily absorb extra costs. 

“It’s not going to be a launch playground anymore,” said Lindsey
Rosenberg, the CEO and founder of Cherryvale Farms, a
supplier of baking mixes to Whole Foods. “Young, hip new brands
won’t be able to afford to go to Whole Foods first.”

Larger brands like Annie’s
Homegrown
, which is owned by the snack-food behemoth General
Mills, can more easily pay to get prime shelf space, she said.

“Annie’s is launching products at an explosive rate, and they can
knock you off the shelf because they have more money to spend,”
Rosenberg said. “It’s a whole new level of challenges for small
brands. It’s either go big or go home now.”

Whole Foods has long been seen by customers as a destination for
discovering new and local brands, vendors said. That’s largely
because Whole Foods gave its store-level buyers ample freedom to
decide what to stock on their shelves. As a result, small vendors
could work their way into Whole Foods by striking up a
relationship with local buyers.

That system is changing as Whole Foods’ global headquarters in
Austin, Texas, takes on more power to decide what to sell in
Whole Foods stores, according to vendors and Whole Foods
employees. It’s getting harder for smaller brands to get into
Whole Foods now, they said. 

“I once drove to every Whole Foods store in the Portland area and
dropped off jars of our nut butters” for stores to sell,
said Michael Kanter, the founder of Eliot’s Adult Nut
Butters
, a brand of natural nut butter based in Oregon.
That’s over, that’s done. That’s not ever happening
again.”

Kanter said conventional grocers like Kroger and Safeway,
which are growing their selections of organic, natural, and local
food brands, were welcoming brands like his that had begun to
find a “massive barrier to entry” at Whole Foods.

Jim Holbrook, the CEO of Daymon, the consulting firm
working for Whole Foods, said local products were still vital to
Whole Foods’ business model. The grocer, he said, is just
charging them for the labor it costs to move products around
during demonstrations.

“There’s no move to keep those vendors out of the stores,” he
said. 

Some vendors are losing money on shipping costs


GettyImages 681666976
Some vendors aren’t
fulfilling Whole Foods orders due to rising shipping
costs.

Joe Raedle/Getty
Images


Whole Foods stopped covering shipping fees and dropped
minimum-shipment requirements in March 2016 for its Whole Body
department, which includes vitamins, supplements, and beauty
products, according to an email the company sent to
vendors. 

About a year later, Whole Foods started rolling out
an order-to-shelf inventory-management system that cut back
drastically on storage
. As a result, stores started making
smaller, more frequent orders.

Small vendors with limited distribution centers often end up
paying more in shipping expenses on small orders than their
products cost, so some have stopped fulfilling Whole Foods’
orders.

“When you are a small company only distributing from one
facility in [the Pacific Northwest] and there is a store in Boca
Raton that wants one unit and it costs $12 to ship and Whole
Foods paying $8 on that invoice, you are losing money,” one
longtime supplier explained.

This vendor described scaling back investments in Whole
Foods as a result.

“We’re taking the resources we used to spend on trying to
support sales in Whole Foods and shifting them to our online
business,” the person said.

Another Whole Body vendor described reassessing a
relationship with Whole Foods. 

“After our sales analysis profile for Whole Foods is
finished, we will then see if it’s even worth it for us,” this
vendor said.

Rosenberg of Cherryvale Farms said she was shifting
resources from Whole Foods as well.

Her company is launching a new snack, and while she would
usually give the new product exclusively to Whole Foods for at
least six months, she’s now going direct to consumers and
launching it online instead.

Brands are considering cutting ties with Whole Foods


Whole Foods
Whole Foods is requiring vendors to pay new fees for
food safety audits and photographs of their
products.

Business
Insider


Some suppliers are considering pulling out of Whole Foods
altogether as a result of the changes, vendors said. Others are
terrified of being cut from store shelves and replaced by larger
brands.

“A lot of the vendors are refiguring their game plans with Whole
Foods,” a broker who represents more than a dozen suppliers said.
“At one time it was considered a reciprocal relationship. Those
days are over. There is no feeling that Whole Foods cares
anymore.”

Another broker said, “My brands all want to pull out of Whole
Foods because they are uncertain of what’s going on.”

Betsy Langton, the CEO and founder of the snack-bar company
Betsy’s Bar None,
decided in December to pull out of Whole Foods.

She said she began to grow disillusioned with Whole Foods last
year after it invited suppliers to a meeting at Oregon State
University and announced that to continue supplying goods to
Whole Foods, all vendors would have to start using — and pay fees
to — two outside companies: UL Everclean and IX-One. UL Everclean
is a food-safety auditor, and IX-One takes photographs of
suppliers’ products. Both charge ongoing fees. 

IX-One, for example, charges $500 annually and $169 for initial
photographs of a product, plus an additional $15 annually per
product for suppliers of fewer than 300 different items. Any time
a product is updated, suppliers have to pay the $169 fee
again. 

“Both cost a ton of money and time,” Langton said, referring to
the processes associated with UL Everclean and IX-One. “Whole
Foods said, ‘You have a year to get this done.’ It’s like
communism. For a small vendor to go through this is a hellacious,
horrible time and financial burden.”

If you have information to share, email
hpeterson@businessinsider.com.


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